When Peloton CEO Barry McCarthy came over in February, the firm had let off 2,800 people, so he had his work cut out for him. Six months later, McCarthy has written a note to employees informing them that the business wants to cut an additional 784 positions in the third wave of layoffs. Peloton will also raise the pricing of the Bike Plus and Tread, as well as close retail showrooms beginning in 2023.
The layoffs and plans to close retail showrooms are part of Peloton’s rigorous reorganization plans after a catastrophic year. Peloton terminated over 600 positions in Taiwan last month as part of a strategy to minimize in-house production. It also stated in February that it was canceling plans for a $400 million facility in Ohio. Meanwhile, McCarthy said that, although the firm is laying off employees on its delivery and customer service teams, it is aggressively recruiting for positions on its software engineering team. McCarthy also said that the firm would minimize its retail base beginning next year in order to boost its e-commerce presence.
Today’s announcement was previewed during Peloton’s third-quarter earnings call in May. McCarthy also mentioned developing third-party store relationships and reducing the necessity for white-glove delivery for its bikes and treadmills at the time.
However, the proposed price increases will have the greatest effect on consumers. To deal with surplus inventory, Peloton reduced the costs of the original Bike, Bike Plus, and Tread to $1,445, $1,995, and $2,695, respectively, in April. The Bike Plus will now revert to its previous price of $2,495 while the Tread will rise by $800 to $3,495. This is more than Tread’s original launch price of $2,495 (later raised to $2,845). The Tread was designed to be the “cheapest” of Peloton’s two treadmills. The Tread Plus, on the other hand, was recalled and withdrawn after causing many injuries and, in one case, the death of a small kid. The original Bike and the newly announced Peloton Guide, on the other hand, will stay unchanged in price.
McCarthy admitted in the letter that the price increases represent a sharp shift in approach. This is due to McCarthy’s effectiveness in controlling the company’s inventory and supply chain issues. It has also acquired a $750 million bank loan, and the price increases are intended to promote the “luxury” image of Bike Plus and Tread.
The layoffs and price increases are also part of Peloton’s continuing attempts to improve its financial flow. McCarthy said in a shareholder letter last quarter that Peloton’s problems had left it “thinly financed” for its demands and that the firm needed to bolster its financial sheet. McCarthy stated in the email, “These modifications are critical if Peloton is ever to become cash flow positive.” “Money is oxygen. Life is oxygen. We just need to become self-sustaining in terms of cash flow.”
The money saved by today’s actions, according to the message, will be used for more research and development as well as marketing. This is consistent with McCarthy’s intentions from last quarter. For example, at the time, he stated that Peloton had spent almost little money promoting their standalone app membership. The business has already corrected this with an ad advertising the standalone app that features actor Christopher Meloni working out naked. McCarthy has been keen on repositioning Peloton as a connected fitness brand, rather than “that Bike business.” So far, this has included planned plans to change the company’s subscription model and create an app store. McCarthy’s has just piloted a concept for leasing the company’s bikes.
McCarthy closed the message optimistic about Peloton’s potential, however, investors haven’t been impressed by Peloton’s reorganization plans in his first six months. Peloton’s stock has dropped about 90% in the last year. Nonetheless, investors seemed to be responding positively to today’s announcement, with shares gaining 8.2 percent. Peloton is slated to announce its Q4 profits later this month, which will provide a better sense of how McCarthy’s restructuring tactics have performed.
